Comments on: Revisiting the equity premium http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: donna cerca uomo Milano http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-54626 Sun, 12 Oct 2014 20:57:01 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-54626 in Glitschka’s very celebrated guide, “Vector Essential Coaching: A scientific Inventive Procedure regarding Making Detail Vector Artwork, very well typically the hands-on course will certainly guide people via a step-by-step process to get developing about Glitschka’s really acclaimed publication, “Vector Fundamental Exercising: A scientific Creative Procedure with regard to Creating Excellence Vector Lady, very well typically the hands-on study course will probably information people via a methodical process with regard to getting So that they can get a majority of the perform posted on this website (eventually); currently I’m sharing an old task: the cacher for a departmental chili cook-off that I won a united states Gate design give intended for in 2010. Often the photography of the soup potatoes will be stock which i have a bit fun doodling through. Each of our Copy Publisher Charlie Barcus published often the duplicate, i mixed some web site from Outdoors Western Press, that is Ashwood Abridged along with Gatlin Striking, in addition to Lucas een Groot’s The combo coming from the Thesis typeface placed for any smaller sized duplicate. The backdrop texture and consistancy originated Von Glitschka’s guide Fall apart Crackle Shed.

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By: johnhhaskell http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-15109 Sat, 22 May 2010 14:12:49 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-15109 If you assume that companies would not be profitable for decades, would you then buy equities at a lower expected return to treasuries? Of course not.

Schrager also seems to confuse ex-ante and ex-post in her attempt at an article and to have a definition of “equity premium” that changes while she’s writing. No wonder her conclusion is so weak.

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By: dirt2624 http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-15086 Fri, 21 May 2010 15:55:23 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-15086 WOW – from all of the research I have done, the equity risk premium varies with 10 year B and B- corporate bonds premiums compared to 10 year US treasuries for the US market. Please run the numbers and think hard on the subject as to why this seems true. (could it be that they are about as risky – hmmm)

Of course this describes the major index relationship and individual companies will vary depending on their characteristics. Large companies with great balance sheets will have a lower premium as will high growth companies until their growth rates falter.

I get such a big chuckle out of the “Fed Model” and the idiots that promote it. It is best used to measure over-valuation rather than under valuation. Stick to the 10 year B and B- corportes, making suitable adjustments for individual companies, and over the long run you will gain an understanding of valuations.

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By: tcolemanuf http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-15049 Fri, 21 May 2010 00:07:35 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-15049 Equity premium, sounds like hocus pocus to me. Schrager is almost correct…

Equities are inherently riskier than Treasuries. Equity prices must ultimately reflect and compensate investors for that risk or no one would hold them in their portfolio.

The reason you hold them in your portfolio is the earnings. Thus, the earnings should be higher than that of comparable investments. Using Shiller’s data set you can see from 1887 to 1960 the earnings yield averaged 4.53% spread over long term interest rates. Since then it has averaged -0.28%. Why did this happen; when did it become OK to accept a riskier asset class but with less of a stream of income? When it became a ponzi-esque game of the greater fool.

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By: RyanT http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-15046 Thu, 20 May 2010 23:04:27 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-15046 I feel that the equity premium is mostly a repercussion of the great depression. To a large extent, an entire generation that was too scared to invest set the stage for a major rebound which we call the equity premium.

In hindsight, it seems easy to say that in 2006-2008 these gains were finally sucked dry and the equity premium was at an end. Now, however, I believe this second “great recession” has set the stage for a new equity premium. The longer the market stagnates and the most fearful the public becomes, the more gains are bottled up for future investors who are willing to jump in.

I am personally tossing small chunks of cash into stink bid day-orders on blue chip stocks with high yields. This way I control my exposure to short term movements (and recent volatility means I can get discounts of 3-5%) and am paid 4-7% while I wait. These dividends continue to build my cash position.

I also hold a significant amount of fixed-income which I may back off in months or years.

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By: cjkubx http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-15043 Thu, 20 May 2010 22:34:12 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-15043 You can see historical equity premiums for 17 countries over 100 years as published by Professor Elroy Dimson.

http://faculty.london.edu/edimson/assets  /documents/Jacf1.pdf

The world averaged Geometric Mean equity premium of 4.6% and Arithmetic Mean equity premium of 5.9%

If it is believed there will be no equity premium then the value of equities should fall, increasing the earnings yield and increasing the equity premium. Though it is not guaranteed for any given year or decade it should over time persist. This has persisted for centuries.

Interesting point, growth is not necessary for high equity returns; in fact, I prefer low or no growth. Please read Jeremy Siegel’s Stocks for the Long Run.

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By: wcw http://blogs.reuters.com/felix-salmon/2010/05/20/revisiting-the-equity-premium/comment-page-1/#comment-15041 Thu, 20 May 2010 22:23:36 +0000 http://blogs.reuters.com/felix-salmon/?p=3939#comment-15041 Back when the market was truly stupid in the late ’90s, TIPS yielded 4%, indicating the market had priced in a new era where productivity was going to soar and real returns were going to be well over 4%. That was pretty crazy. By contrast, expecting private enterprise in a propertarian system designed and run by capitalists to deliver real returns below TIPS is almost equally crazy.

Current long-dated TIPS will deliver real returns a bit under 2%. As a result, if you believe equities are vaguely rationally priced, you should mark their expected real returns at greater than 2%. DeLong says 4%? That may be overoptimistic, but it’s in the discussion. Get 1% population growth, 0.5% immigration, excellent 2.5% productivity growth and no significant diminution in profit share, and you’re getting close. I’d be more comfortable with lower productivity growth myself, but I doubt we register a long-run 0%.

One aside: you’re confusing premiums over cash and over bonds. I like to use ‘real return’ instead of the former (since cash returns roughly equal inflation), reserving the phrase ‘equity premium’ for the expected long-term return premium over long treasuries.

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